V.K. Tulsian, Chartered Accountant vs Cce-Lucknow

[Arising out of Order-in-Original No. 10-COMMISSIONER/LKO/2006-07 dated 15/02/2007 passed by CCE-Lucknow]

1. Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

V.K. Tulsian, Chartered Accountant Appellant

Vs.

CCE-Lucknow Respondent

Appearance: Shri Prashant Shukla, Advocate for the appellant.

Shri Govind Dixit, DR for the respondent

Coram: Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri S.K. Mohanty, Member (Judicial)

Final Order No. 51701/2015

Per: Rakesh Kumar

The facts leading to filing of this appeal are, in brief, as under:

1.1 M/s. Shyam Traders, Kundri, Rakabganj, Lucknow (UP) is a proprietary concern of Shri Sanjeev Mishra and is engaged in manufacture of Shyam Bahar brand Gutka chargeable to Central Excise duty. On receipt of intelligence that M/s. Shyam Traders are engaged in large scale evasion of duty by unaccounted manufacture and clandestine clearances of Gutka, the factory premises as well as residential premises of Shri Sanjeev Mishra and his family members were searched on 20th October, 2003. From the residential premises of Shri Sanjeev Mishra, cash of Rs. 4,38,80,530/- was recovered for which Shri Sanjeev Mishra, at that time, could not give any explanation. Investigating Officers, therefore, placed this cash seizure under reasonable belief that the same is sale proceeds of unaccounted sales of Gutka cleared without payment of duty and hence, the same would be liable for confiscation. Subsequently, Shri Sanjeev Mishra came forward with an explanation about the cash recovered from his residential premises that he had promoted a company called M/s. Shyam Vanaspati Oil Limited (SVOL) for manufacture of vanaspati of which he himself and his brother Shri Pratyush Mishra are the Directors.

In this regard, Shri Sanjeev Mishra on the basis of the certificate issued by the appellant, Shri V.K. Tulsian, a Chartered Accountant claimed that cash of Rs. 4,38,80,530/-seized from his residential premises was share application money received from investors. It was claimed by Shri Sanjeev Mishra that an amount of Rs. 4.05 crores had been received from three companies M/s. Betsy Growth Finance Ltd., M/s. Sunshine Capital Ltd. and M/s. Stellar Investment Ltd. all of Delhi. However, enquiry revealed that one Shri Surender Jain and his brother Virender Jain are behind these three companies, i.e., M/s. Betsy Growth Finance Ltd., M/s. Sunshine Capital Ltd. and M/s. Stellar Investment Ltd. In this regard, Shri Surender Jain in his statement dated 11/5/2004 and Shri Virender Jain in his statement dated 13/5/2004 stated that bogus/fictitious entries have been made in the books of account of M/s. Betsy Growth Finance Ltd., M/s. Sunshine Capital Ltd. and M/s. Stellar Investment Ltd. to show investment in cash towards share application in respect of the SVOL, while, in fact, no money had been paid to SVOL.

In view of the above statements of Shri Surender Jain and Virender Jain, the claim of Sanjeev Mishra based on the certificate given by Shri V.K. Tulsian that the cash of Rs. 4,38,80,530/- seized from the premises was share application money received from investors who wanted to invest in SVOL, appeared to be false.

1.2. It is in view of the above investigation that a show cause notice dated 14/10/2010 was issued to M/s. Shyam Traders. In the show cause notice, besides the duty demand of Rs. 7,17,16,530/- from M/s. Shyam Traders in respect of the alleged clandestine clearances of Gutka during period from 1/1/2001 to 19/10/2003 along with interest thereon under section 11AB and imposition of penalty on them under section 11AC, there was also proposal for imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on Shri V.K. Tulsian, who was alleged to have given the false certificate that the cash of Rs. 4,38,80,530/- seized from the residential premises of Shri Sanjeev Mishra, proprietor of M/s. Shyam Traders was share application money received from investors for investment in SVOL claimed to have been promoted by Shri Sanjeev Mishra.

1.3 The Commissioner in his adjudication order dated 23/3/2007 besides confirming the duty demand against M/s. Shyam Traders along with interest and imposing penalty on him under section 11AC, also imposed penalty under Rule 26 of the Central Excise Rule, 2002 on other notices including Shri V.K. Tulsian and penalty imposed on Shri V.K. Tulsian is Rs. 50 lakhs.

1.4. Against this order of the Commissioner, this appeal has been field.

2. Heard both the sides.

3. Shri Prashant Shukla, Advocate, ld. Counsel for the appellant, pleaded that the appellant Shri V.K. Tulsian is a Chartered Accountant; that no certificate had been issued by him; that Shri Sanjeev Mishra had been appointed as Auditor of SVOL, but he had not accepted that appointment; that as per the records of the Registrar of company, SVOL had been incorporated on 9/10/2003 prior to the date of seizure; that the appellant had absolutely no role in floating of SVOL; that in any case, the provisions of Rule 26 of Central Excise Rules, 2002, as the same existed during the period of dispute, are not attracted in the case of the appellant, as the appellant has neither dealt with any excisable goods nor is involved in acquiring possession of or sale, harbouring, concealment, transportation, etc of any excisable goods which he knew or had reason to believe were liable for confiscation; that a finding in this regard has already been made in para 5 of the Tribunals order dated 12/8/2011 in case of Shyam Traders Vs. CCE-Lucknow reported in 2012 (228) ELT 468 wherein the Tribunal had set aside the penalty under Rule 26 of the Central Excise Rules, 2002 on SVOL and its Directors Shri Pratyush Mishra and Shri Sanjeev Mishra observing that the allegation against SVOL and its Directors is basically of money laundering for which there are no provision in the Central Excise Act, 1994 or the rules made thereunder for imposition of penalty; that Rule 26 of the Central Excise Rules, 1944 is attracted in respect of any person who is concerned in acquiring the possession of or the sale, concealing, transporting, etc of excisable goods in respect of which he knew or had reasonable belief that the same are liable for confiscation, that the findings of the Tribunal in respect of SVOL and its Directors would also apply in the case of the appellant, even if the departments allegation that the appellant had issue the certificate, is accepted; and that in view of this, the imposition of penalty of Rs. 50 lakhs on the appellant is not sustainable.

4. Shri Govind Dixit, ld. DR for the respondent, defended the impugned order by reiterating the findings of the Commissioner in the impugned order and pleaded that while in para 5 of the Tribunals order dated 12/8/2011 in case of M/s. Shyam Traders in respect of appeal filed against the Commissioners order dated 23/3/2007, the Tribunal has discussed the role of Shri V.K. Tulsian (appellant in this case) also along with the role of Shri Sanjeev Mishra, Shri Pratyush Mishra, Shri Virender Jain and Shri Surender Kumar Jain expressing the view that the penal provisions of Rule 26 are not attracted in their case, the operative portion of the order is silent about the appellant- Shri V.K. Tulsian and thus, there is a mistake apparent from records in the Tribunals order, which could be rectified only on the basis of an application for rectification filed under section 35C (2) of Central Excise Act during the period prescribed for the same and since no such rectification application has been filed, the Tribunal, at this stage, cannot deal with the issue of imposition of penalty on the appellant. Shri Dixit also cited the judgment of Honble Gujarat High Court in the case of Sanjay Vimal Bhai Deora Vs. CESTAT reported in 2014 (306) ELT 533 (Guj.) wherein the Honble High Court has held that any person who indulged in the activities enumerated in Rule 26 in respect of any excisable goods which he knew or had reason to believe are liable for confiscation, would attract penalty under this Rule even if no goods are confiscated and that the ratio of this judgment is squarely applicable to the facts of this case. He pleaded that the appellant has abetted activity of duty evasion by M/s. Shyam Traders and hence, penalty under Rule 26 of the Central Excise Rules would be attracted in his case.

5. We have considered the submissions from both the sides and perused the records.

6. The Role of Shri V.K. Tulsian is discussed in para 17 of the impugned order and the allegations against him, as mentioned in this paragraph is that Shri V.K. Tulsian, Chartered Accountant, an Auditor of SVOL of his act of omission and Commission, committed criminal conspiracy and in connivance with others executed scheme of arrangement of providing fictitious and bogus entries in the books of account of SVOL to facilitate M/s. Shyam Traders to escape from the penal action against them for contravening the provisions of Central Excise Act, 1944 and the Rules made thereunder and, therefore, he is liable for penal action under the provisions of Rule 26 and 27 of the Central Excise Rule, 2002. The appellants plea is that he had not issued any certificate and that though M/s. Shyam Traders had appointed him as Auditor for SVOL, he had not accepted that appointment and that as such he has nothing to do with SVOL. However, even if the departments allegation against the appellant is accepted, it looks down to money laundering, i.e., fabricating documents to legalize the unaccounted income of M/s. Shyam Traders. For this alleged activity, penalty is sought to be imposed on the appellant under Rule 26 & 27 of the Central Excise Rules.

7. Rule 26 of the Central Excise Rules, 2002 as the same stood during the period of dispute, provided for imposition of penalty not exceeding the duty involved on the goods or Rs. 2000/- whichever is greater, on a person who acquires possession of, or is in any way concerned in transporting, depositing, removing keeping, concealing, or in any other manner dealing with any excisable goods which he knew or had reason or liable for confiscation. It is settled law that the expression in any other manner in Rule 26 has to be construed in ejusdem generis with the words appearing before this expression and therefore, penalty under this Rule is imposable on a person who has dealt with any excisable goods in the manners specified in this Rule while knowing or having reason to believe that the goods dealt with are liable for confiscation. Abetment of duty evasion or of the activities enumerated in this rules is not covered. In the present case, the appellant has not dealt with any excisable goods inasmuch as he has neither acquired possession of any excisable goods nor he is in any way concerned in transporting, removing, keeping, depositing, concealing, selling, or in any other manner dealing with excisable goods which he knew or had reason to believe are liable for confiscation. The Appellants alleged activity would at the most amount to abetment of duty evasion which as discussed above is not covered by Rule 26. Therefore, the penal provisions of Rule 26 are not attracted in the case of the appellant for his alleged act of fabrication of documents to give legal cover to illicit income of M/s. Shyam Traders. Rule 27 provides for penalty up to the maximum limit of Rs. 5000/- for breach of the Central excisable goods where no other penalty is prescribed. For invoking Rule 27 there must be a breach of Central Excise Rules and in the present case, the department has not spelled out as to which the provision of Central Excise Rules has been contravened by the appellant by his action as mentioned above.

8. In view of this, we hold neither the Rule 26 nor Rule 27 of the Central Excisable Rules, 2002 is applicable. In the judgment of High Court of Gujarat in the case of Sanjay Vimal Bhai Deora Vs. CESTAT (Supra) cited by the learned DR the dispute was whether penalty is impossible on the appellant. Shri Sanjay Vimal Bhai Deora who was Director of M/s. Sampat Aluminum Pvt. Limited and Deora Wire N Machines Pvt. Ltd. and was authorized signatory of M/s. Sampat Heavy Engineering Limited and there was allegation of clearance of finished goods without payment of duty as well as availing CENVAT Credit fraudulently on the basis of bogus invoices procured from Registered Central Excise without physically receiving any raw material against these company and in this case, Shri Sanjay Vimal Bhai Deora was sought to be penalized under Rule 26 for being concerned in clearance of the goods without payment of duty. But in the present case, the appellant Shri V.K. Tulsian, Chartered Accountant had absolutely no role in illicit clearance of the gutka without payment of duty by M/s. Shyam Traders. Therefore, the judgment cited by the learned DR is not applicable to the facts of this case.

9. In view of the above discussion, we hold the impugned order. Imposing penalty of Rs. 50 lakh on the appellant is not sustainable. The same is set aside. The appeal is allowed.

[Operative portion of the order has already been pronounced in the open court. ]

(Rakesh Kumar) (S.K. Mohanty)

Member (Technical) Member (Judicial)

Ritu